UK · IR35 explained

What does inside IR35 mean?

Being inside IR35 means HMRC considers your contract to be employment for tax purposes, even though you work through a limited company. Your income from that contract is taxed broadly like a salary — through PAYE — which usually reduces your take-home pay by 20–30%.

Inside IR35 in plain English

IR35 targets “disguised employment”: situations where someone provides their services through a company but behaves day-to-day like an employee of the client. If your working arrangement looks like employment — you must do the work personally, the client controls how you do it, and there's an ongoing obligation on both sides — then you're inside IR35. The tax-efficient salary-plus-dividends approach is no longer available for that income; instead it's treated as deemed employment income.

What inside IR35 does to your pay

When a contract is inside IR35, income tax and employee National Insurance are deducted from your fee through PAYE. On top of that, the fee-payer (your client, agency, or umbrella company) must account for employer's National Insurance (15% above £5,000) and the 0.5% apprenticeship levy, which in practice come out of the assignment rate. The combined effect is why an inside-IR35 engagement leaves you with noticeably less than an equivalent outside one. You can see the exact difference for your day rate with our inside vs outside take-home calculator.

How a contract ends up inside IR35

• No substitution. You must personally do the work and the client wouldn't accept a substitute.
• Client control. The client sets your hours, location and how you carry out the work.
• Mutuality of obligation. There's a continuing expectation that the client provides work and you accept it.
• Integration. You're treated as “part and parcel” of the organisation — line management, staff systems, a fixed role.

Our IR35 status checker weighs these factors and gives you an indicative inside/outside/borderline result.

What to do if you're inside IR35

Being inside IR35 isn't the end of the world — many contractors work inside-IR35 roles profitably — but you should price for it and understand your options:

• Negotiate the rate. Ask for a higher day rate to offset the extra tax; aim for roughly 15–20% more than an equivalent outside role.
• Consider an umbrella company. Inside-IR35 work is often run through an umbrella, which handles PAYE for you. Compare umbrella vs limited-company costs before deciding.
• Make pension contributions. Employer pension contributions can be a tax-efficient way to use inside-IR35 income — take advice on this.
• Challenge an incorrect determination. If you believe the assessment is wrong, you can dispute the Status Determination Statement with the client.

General guidance only, not financial or legal advice. See our disclaimer.